Dependent Agent PE - Portugal Central Administrative Court goes the Roche (wrong) way
The ones that follow international tax know the problem of establishing the existence of a permanent establishment (PE) based on a commissionaire agreement is a heavily disputed issue, especially under the pre-2017 language of Art 5(5) of the OECD Model.
International case law has basically indicated two paths - the legal approach vs economic understanding of the notion “in the name of” – i.e. if the local entity habitually exercises the authority to conclude contracts in the name of the foreign parent company.
Portugal Central Administrative Court issued recently judgments where it sided with the tax authorities considering that a PE is deemed to exist, in a similar way as the Spanish Supreme Court Roche case of 12 January 2012 and departing from other international precedents like Zimmer (France) and Dell (Norway).
In this cases, Swiss parent company (Biogen*) operated in Portugal through a Portuguese Subsidiary (Biogen Portugal) with two key contracts in place, namely a commission agreement and a distribution agreement.
Under the Commission Agreement, Biogen Portugal sold one product (Product A) in its own name, but for the account and economic risk of the Swiss parent company. The Swiss company set the sales prices, defined discounts, and retained all intellectual property rights.
Under a separate Distribution Agreement, Biogen Portugal operated as a limited-risk distributor for other product (Product T), meaning it bought products from the Swiss company and resold them locally. It was guaranteed a fixed operating margin (approx. 5%). The Swiss company retained business risk and pricing control. Sales in Portugal were executed by Biogen Portugal to hospitals and healthcare clients and Biogen Portugal acted as the public-facing entity, handling the marketing, sales execution, logistics and customer communication.
The Portuguese Tax Authority (AT) considered that Swiss parent company acted via a dependent agent (Biogen Portugal) creating a permanent establishment of the Swiss company in Portugal and issued a corporate tax assessment for profits attributable to the PE.
The tax authorities considered that Biogen Portugal was not truly independent. It had no autonomy over key business decisions. It functioned exclusively for the Swiss company. It did not bear business risks.
The Swiss company argued that Biogen Portugal was an independent agent and therefore no PE under the Portugal-Switzerland Tax Treaty. The Swiss company argued that Biogen Portugal acted in its own name, not in the name of the Swiss company. Therefore, it did not have or exercise powers to conclude contracts in the name of Biogen Portugal, as required under Article 5(4) of the Portugal–Switzerland Double Tax Treaty (Dependent Agent Article). Biogen Portugal claimed to be a commercially and legally independent distributor and commission agent. Biogen Switzerland VAT registration alone does not create a PE for income tax as there was no fixed place of business.
The Court upheld the decision of the lower Court, rejecting the Swiss parent company’s appeal. The Court confirmed the existence of a Dependent Agent (DAPE) based on the fact that Biogen Portugal acting on behalf of the Swiss company lacks autonomy and demonstrates economic dependence towards the Swiss parent company. The Court adopted a substantive approach rather than a formalistic approach.
The approach towards profit attribution to the DAPE also deserves a discussion.
First the Court accepted the method used by the Portuguese tax authorities, which was based on sales invoiced by Biogen Portugal under both the commissionaire and distribution agreements. The calculation relied on VAT filings, adjusted by: Cost of goods sold (initial stock + purchases – final stock) and Commissions and other deductions (e.g., price adjustments, discounts). The Court considered this to be aligned with the “separate entity” principle for PE profit attribution.
The Court affirmed that objective data—even if taken from the agent's accounting records, third parties, or tax databases from other taxes (like VAT register) can be legitimately used to calculate the PE’s taxable income. The Court stressed that it was up to Biogen Switzerland to provide evidence of additional adjustments, expenses and charges (which it failed to do).
Although transfer pricing principles can apply to dealings between a non-resident and its Portuguese PE, the Court clarified that TP rules are anti-abuse tools, triggered only where there are indications of tax avoidance and tax authority had no reason to question the declared data, so no TP corrections were necessary.
Kore Take
First, we would expect international tax cases that involve interpretation of tax treaties would be more detailed on legal basis namely to justify moving beyond the formalistic approach of tax treaty as evidenced in cases such as Zimmer (France) e Dell AS (Norway).
Second, the Court makes reference to the OECD Model and Commentaries but is silent on the fact that relevant OECD Commentaries (paragraphs 32.1 and 33) were published on 2003 and 2005 – well after the 1975 tax treaty. This may be relevant as the dynamic interpretation of a tax treaty seems to conflict with prior Portuguese Supreme Court positions.
Third, the Court should have been aware of the difficulty to identify PEs in limited risk distributors or commissionaire structures led to the adoption of the BEPS and Multilateral Convention amended PE definition. By ignoring the issue, the Portuguese Courts seems to be open to adopt an interpretation closer to the new definition even without the MLI election (i.e. no PE changes were made on the Swiss/Portugal tax treaty).
Fourth, on the attribution of profits to the DAPE the Court’s approach did not follow the OECD’s Authorized OECD Approach (AOA). There was no functional and factual analysis performed to determine the functions undertaken by Biogen Portugal on behalf of Swiss parent which are critical to the attribution of any Swiss parent assets or risks to the DAPE. The simplistic procedure adopted undermines the “separate entity” principle and can even lead to over attribution of profits to PE country.
Fifth, the over reliance on VAT and accounting data that serve different purposes and do not necessarily reflect arm’s-length pricing or profit margins indicate the Portuguese Court unwillingness to dive into the arm’s-length dealings between the head office and the PE.
Finally, the Court’s assertion that transfer pricing (TP) rules are only relevant in cases of tax avoidance or abuse fundamentally misunderstands the purpose and scope of Articles 7 and 9 of the OECD Model Tax Convention. Under Article 9, the remuneration paid by the Swiss parent to Biogen Portugal would be evaluated based on the arm’s length principle, reflecting the functions performed, assets used, and risks assumed by the Portuguese entity. Similarly, Article 7 requires that the profits attributable to the deemed permanent establishment (DAPE) be those the PE would have earned if it were a separate and independent enterprise performing the same activities as Biogen Portugal does on behalf of the Swiss parent. It is highly unlikely that a truly independent distributor would access the same cost of goods sold (COGS) or margin as reflected in the VAT register, especially if it were assuming the level of operational involvement seen in this case. The court’s reliance on VAT data, without a proper arm’s length analysis may fail to reflect the economic substance and violates principles of profit attribution under the OECD framework.
The Portuguese Court may have lost a good opportunity to interpret Article 5 of the Tax Treaty and the agreements from a literal point of view. Instead, the Court preferred to consider the expression “in the name of” broadly enough to cover all cases where the foreign company is bound by the contract concluded by the agent (even in situations where the contract was not formally concluded in its name). Ultimately, the Court also may have lost an opportunity to emphasize that TP principles (especially under AOA) are core tools for attributing income to PEs and that ignoring TP analysis may possibly lead to non-arm’s-length outcomes that overstate the income attributable to the Portuguese PE.
This was ultimately a big win to the tax authorities and remains unclear if there is appeal basis to the Supreme Court.
Read the last 2025 decision in Portuguese - similar to the prior two decisions of the same Court.
(*) Although Portuguese tax court decisions are generally anonymized, the official court database failed to properly anonymize the present case, inadvertently revealing the identity of the taxpayer. Given the public availability of identifying details in the source material, we opted to refer to the taxpayer by name in this analysis.
© Kore Partners, 2025
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